One of the most anticipated events on the Central Banking calendar commenced this week: Jackson Hole, where “policymakers, academics and economists from around the world” gathered to discuss plans for the future. Powell gave his much-anticipated speech on Friday, quickly getting to the tough talk:
The Federal Open Market Committee’s (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal.
Sticking to script, he promised to maintain restrictive monetary policies while warning of another “unusually large increase” to interest rates next month.
The Oh No moment occurred when he cited lessons learned from over half- a century ago:
Our monetary policy deliberations and decisions build on what we have learned about inflation dynamics both from the high and volatile inflation of the 1970s and 1980s…
Of course, we know this to be false and that they learned little to nothing since 1970. If they had, the pursuit of currency debasement as monetary policy would have ceased several generations ago.
The critical knowledge Powell claims to have learned:
The first lesson is that central banks can and should take responsibility for delivering low and stable inflation… Today, we regard these questions as settled. Our responsibility to deliver price stability is unconditional.
True, the Fed should take responsibility for easy money policies, monetary inflation, interest rate suppression, the boom/bust cycle and relentless dollar depreciation. Congress could also abolish the Fed entirely, or at least stop their ability to intervene in the market, leaving the Fed with no more than an oversight role over the banking system. Unfortunately, while entirely possible, the odds of this happening at this time are still slim to none. This does not mean it will always be this way, alternative options exist, even if unlikely at the present moment.
He continued:
The second lesson is that the public’s expectations about future inflation can play an important role in setting the path of inflation over time.
We can give him this. Keeping the masses calm and complacent will always be a goal of central planners. The last thing the bankers want is a public panic potentially leading to a bank run, or the widespread realization that high (price) inflation is here to stay.
Powell acknowledges that their window of opportunity closes ever so slightly with each passing day:
The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.
It would require a combination of the passage of time, media persuasion, Fedspeak, and some rejigging of statistical data in order to change public perception again.
Lastly, and certainly the most detrimental, he proclaims:
That brings me to the third lesson, which is that we must keep at it until the job is done.
If the only viable solution is to ask that the Fed does nothing, clearly not on the agenda, then we accept that the interventions and new schemes will only increase with time. He cites more comparisons to the Volcker era; but as written before, it’s not 1970 nor the 1980’s. They can only compare to this period for so long and it’s well overused as is.
For all the hoopla surrounding this Jackson Hole Symposium, the three lessons learned by Powell are nothing we haven’t heard before. If there is anything to learn from Jackson Hole, it’s that the best time to end the Fed was a little over 100 years ago; the second-best time is now.
